Mumbai: Foreign portfolio investors (FPIs) will return to India and other emerging markets in 2019 after staying away the previous year, a top executive at Aditya Birla Sun Life mutual fund said.

“India and other EMs now offer favourable risk-reward amid improving growth, supportive macros, healthy balance sheets, light investor positioning and reasonable valuations," said Mahesh Patil, co-chief investment officer, Aditya Birla Sun Life AMC. “Consequently, we will see a reversal of the FPI outflows that took place in 2018. In addition, domestic liquidity will sustain in India with SIP flows expected to remain steady," Patil said at a press conference on Thursday.

However, he added that as quantitative easing is wound down, liquidity will be moderate and fund managers will turn selective.

FPI equity flows were negative in 2018 in EMs including India on a strong dollar and increasing yields in the US, lower rate hikes in EMs and high crude oil prices. Amid stock market volatility, foreign institutional investors (FIIs) saw a net outflow of $4.58 billion from India, the steepest sell-off in a decade. FIIs were net sellers in all major Asian markets, except China. In Asia, they sold the most in Japan, withdrawing $45.82 billion from equities in 2018, as US assets became more attractive.

Higher interest rates tempt large foreign funds to move their money to the US, hurting emerging markets that face a stronger dollar and high crude prices.

Aditya Birla Sun Life AMC also expects corporate profit to improve this year as businesses have adjusted to policy changes, domestic consumption remains steady and macro fundamentals are in place.

It estimates earnings growth of 24% for the Nifty in FY20. “The largecap Nifty index valuation at 17-18 times one-year forward earnings multiple is at 10% higher than the long-term average. However, considering the better earnings visibility, valuations are reasonable. An improving growth outlook “on the road to recovery" will drive markets to scale new highs in 2019. We expect markets to deliver low teen returns in 2019," Patil added.

Key risks, he said, are higher crude prices, escalation of the US-China trade war and a hard landing in China, and political uncertainty due to general elections this year.

The Sensex and Nifty gained 5.91% and 3.15%, respectively, in the previous year. However, both BSE’s mid-cap and small-cap indices slipped to seven-year lows on concerns of steep valuations and regulatory measures.

Close